Fed's Mester: Not anywhere near to stopping rate hikes

In a CNBC interview, Federal Reserve Bank of Cleveland President Loretta Mester said it makes sense to slow down a bit the pace of rate hikes.

Key comments

Can now be very deliberate in setting policy.
    
Need to be more judicious in balancing risks.
    
Not anywhere near to stopping rate hikes though.
    
We've had some good news on inflation front, but need more and sustained good news.
    
Am very grateful we've seen some encouraging signs on inflation.

We are beginning to see our actions working.
    
Question is how do we calibrate policy to get back to 2% inflation goal.
    
Getting back to 2% will take some time, we need to do more work.
    
I don't think market expectations of fed funds rate is really off.
    
I do think we need to get into restrictive territory, right now we are just barely there.
    
Rate path will depend on the economy.
    
 We are moving into a different cadence on policy, letting data guide us.
    
  I will be listening to my contacts, as their feedback is more forward looking.
    
I think we can slow down from 75 at dec meeting.
    
 But we need to let economy tell us going forward the pace of hikes after that.
    
 If we don't see meaningful progress on inflation next year, we will need to react.
    
Journey back to 2% will have some pain involved.

If we don't see meaningful progress on inflation next year, we will need to react.
    
Journey back to 2% will have some pain involved.
    
Very much monitoring balance sheet runoff impact on financial market functioning.
    
We have said we will be flexible on balance sheet if conditions change; so far no reason to change.
    
 I don't have a recession in my forecast.
    
But with below-growth trend, there are risks an unexpected shock could send us into recession.
    
But right now the focus is on getting inflation down.

US dollar update

The US Dollar  DXY dropped to a fresh low of 106.28 on Friday, extending the post-CPI dump into a fresh layer of potential support. On Monday, the greenback as measured by the DXY index is up 0.85% at the time of writing at 107.87.  The catalyst for the move can be partly put down to a risk-off start to the week due to fresh COVID-19 curbs in China that have fuelled worries over the global economic outlook.